IR35 soft-landing nearly over: are you ready for the 6th April?
How quickly a year has passed! It seems like only a few months ago we were drumming hard for the need for businesses to be prepared for the upcoming changes to IR35 off-payroll working rules, urging recruiters to get their compliance in place, and encouraging our contractors to consider the extra peace-of-mind of IR35 insurance before the new rules became law.
Now, we’re headed once again into a new tax year. For IR35, this means the end of the “soft-landing” period that HMRC promised businesses as an adjustment buffer while we all got to grips with how the new rules would work in practice for our firms.
This means that from the 6th April, we can expect HMRC to go harder with investigations, fines and penalties. The grace period is over and the message is clear – have your IR35 compliance watertight or risk opening yourself up to the stress of a potential case being mounted against you. The new changes put increased responsibilities and liabilities on agencies who are the fee-payers in contractual employment agreements, meaning many recruiters have new legal and financial interests in ensuring compliance.
Compliance checks have already started
We know from partners that IR35 compliance checks have already begun, specifically in the energy and finance sectors. Last September, HMRC started to send out letters to organisations asking about their processes for hiring contractors working through a PSC or other intermediary. While the letters were worded in terms of supporting businesses in their compliance, they will still have been a stark warning that HMRC intends to act fast in implementing and enforcing off-payroll working rules.
Recruiters can probably expect more and more end-clients to be getting these or similar communications over the coming months – and the language may change to become more forceful as we move out of the soft-landing phase. Clients with less experience of IR35 rules may be intimidated by the taxman getting in contact with them, so it might be useful for you as a recruitment agency to have a plan for how to support clients to deal with a compliance check.
This could help with writing a response, for example, a standard letter that can be tailored to include the relevant information for any given client, or an area of your website that offers some extra guidance.
Is CEST best? We don’t think so!
Now is also a good time to assess how well your current systems for compliance are working for you, and whether you, your end-clients and your contractors are all using the most effective and accurate tools for the job. There’s no denying that IR35 can be a complex minefield, and simplistic solutions, however attractive they might be to impatient and money-conscious clients, are unlikely to yield solid results in the long term.
For example, on the surface, HMRC’s CEST tool, offered free and with a (heavily-worded) promise by the service to stand by the results, might seem like an attractive IR35 solution. However, regular readers of this blog will know that it’s not a method that we recommend relying upon.
From a high chance of an indeterminate result to disastrous consequences for government departments using the tool – find out more here about why we wouldn’t recommend CEST as your sole IR35 compliance tool.
How Kingsbridge can help
The hard edge of an enforcement period can be a stressful thing to have looming over you, especially if you still don’t feel 100% confident in your IR35 compliance processes. If you, your end-clients, or your contractors are worried about the ending of the soft landing period, there are several ways in which Kingsbridge can help with your IR35 compliance so that you’re ready for 6th April 2022.
The Kingsbridge Status Tool
Our hybrid IR35 status tool is designed with our partners – like recruitment agencies and end-clients – in mind. Simply answer a set of comprehensive questions about each contractor engagement, and the tool will return a result within minutes. The questions have been developed by our tax expert Andy Vessey, who has successfully defended more than 550 IR35 enquiries. They’re carefully worded to probe more deeply and specifically into the contract and working practices than the CEST tool does, addressing mutuality of obligation (MOO) and all other significant outside IR35 indicators. If the results throw up a borderline decision, our legal team will contact you to have a more in-depth chat about the contract before we make a final recommendation. You’ll always get a firm answer of outside or inside IR35.
Once you have a decision on the status of a contract and have supported the end-client to produce a Status Determination Statement, you may then wonder if there’s a way to protect everyone in the event that HMRC decide to investigate your contractors, your end-clients, or your recruitment agency for compliance with off-payroll working rules.
We designed our IR35 insurance not only to protect our contractors from the stress and financial worry of an investigation but to be flexible enough to support everyone in the contractor supply chain. It covers taxes, interest and penalties for IR35 investigations – and will flex to protect whichever party HMRC deems to be liable for the errors.
If you feel that your IR35 compliance needs an overhaul, we can support you with that. We can help with staff training, onboarding end-clients and demonstrations of our status tool. If your end-client receives a compliance letter, we can also act as their agent and communicate with HMRC on their behalf. Please contact our partnerships team for more information if you’re interested in some more tailored support from the experts in IR35.